Question

Surj Uppal and Parvinder Atwal began a new business on February 14, when each invested $157,500 in the company. On December 20, it was decided that $61,400 of the company’s cash would be distributed equally between the owners. Two cheques for $30,700 were prepared and given to the owners on December 23. On December 31, the company reported a $122,800 profit.

Required:
Prepare two sets of journal entries to record the investments by the owners, the distribution of cash to the owners, the closing of the Income Summary account, and the withdrawals or dividends under these alternative assumptions:

a. The business is a partnership.

• Record the investment into business by partners.
• Record the distribution of cash to the owners.
• Record the closing of the Income Summary account.
• Record the closing of withdrawals.
  
  b. The business is a corporation that issued 1,000 common shares. Cash dividend account is used for declaring dividends.
  
• Record the issuance of common shares.
• Record the declaration of dividends.
• Record the payment of dividends.
• Record to close the income summary account.
• Record to close the dividends accounts.

Answer 1

Prepare two sets of journal entries to record the investments by the owners, the distribution of cash to the owners, the closing of the Income Summary account, and the withdrawals or dividends under these alternative assumptions:

a. The business is a partnership.

b. The business is a corporation that issued 1,000 common shares. Cash dividend account is used for declaring dividends.

Refer to the below images for the above mentioned questions in a detailed way of solution.

strema The business is a partnership : Requirement particulars Debit Credit Date Feb 14 Cash Al Dr $315000 S 157500 & 157500 (Being To Suri uppal capital Alc To parvinder Aitwal Capital al to record investment into business by partners). $36700 $30700 Dec 23 $ 61400 Sorg uppal withdrawals Alc Dr parvinder Atwal withdrawals Ac Dr To cash Alc (Being to record withdrawals by owners) $122800 Dec 31 Income To to (Being to summary tle Dr susj oppal capital Ale parvinder Atwal capital Ale record closing of income Summary to capital) 861400 $61400 Dec.31 Surj uppal capital Ale Dr $30700 parvinder Atwal Capital Alcor $30700 To Sorg uppal withdrawals To parvinder Atwal withdrawals (Being to record closing of withdrawals to capital) $ 30700 $30700

corporation that issued at b. - The 1000 business common is a shares- Requirement a credit Date Debit $315000 Feb y £315000 61400 particulars cash Atc DX - To Common Shares Alc (Being to record issuance of Common Shares) cash dividends Alc Dr To common dividend payable (Reing to record declaration of dividends) Common Dividend payable alcor - To cash Alc Dec 20 $ 61400 $61400 Dec 23 861400 (Being to record pas deridends) Dec 31 122800 $122800 Income Summary alc Dr To Retained earnings (Being to record closing of income summary to retained earnings Retained earnings Ale or To cash dividends Alc (Being to record closing of dividends to retained earnings) $ 614000 Del 31 $ 61400